By Muskan Arora
The $59.6bn State of Connecticut Treasurer’s Office earmarked
$6.7bn as a pacing plan for its private market allocations for this year.
There has been a significant reduction to the year's pacing plan compared to last year, which was at $25.6bn, as per the recent
meeting materials.
While private equity has faced a reduction in pacing from $17.8bn pacing in 2024 to $2.8bn this year; the pension plan seems optimistic about real estate (RE) allocations this year despite RE pulling down the returns last year.
Connecticut is not the only one bullish, most allocators in the current environment are hopeful of real estate valuations stabilizing this year.
The system returned 11.5% for its fiscal year that ended June 30, below its benchmark of 12.9%, as per the year-end performance review presented at Sept 11 meeting.
Real Estate and Infrastructure
With a strategic target allocation of 10%, the pension plan will
allocate $850m to non-core RE funds, and the remaining $500m to core funds.
In the same meeting, the plan made two commitments of $200m
to Big Real Estate Fund III, a value-add RE credit fund which focuses on senior
mortgages, floating rate bridge loans, mezzanine loans and preferred/structured
equity; and $250m to GCM Real Estate
Small and Middle Market Fund, a fund-of-one strategy which a focus on niche
and middle market opportunities.
After this, the system is left with $400m to allocate to
non-core for the remainder of the year.
Within infrastructure, the system has a strategic target allocation of 7% with a focus on core infrastructure funds with a pacing of $500m and the remaining $200m to non-core infra funds.
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Private Credit
With a target allocation of 10% to reach by 2028, the pension
plan will start its co-investment activities within the sleeve this year and earmarked
$200m.
Further, $1.6bn pacing is towards primary strategies which
include senior lending (30%-100%), mezzanine (0%-40%), and special situations
(0%-40%).
While the system will look out for new managers to add to the
roster this year, they will also focus on scaling high quality managers both
new and existing.
Private Equity
With a target allocation of 15% to be achieved by 2028, the
pension plan is set to make its first co-investment deal this year through to
2027 and has kept aside $300m for the same.
Multiple allocators in the space consider co-investment
vehicles to be cost-effective and mostly invest in it as a sidecar.
With the pacing set as $2.5bn for primary strategies this
year, the system plans to hike investment activities in small and mid-market
buyout with an exposure to the U.S. and Europe and additional Growth Equity
exposure.
Through its PE sleeve, the system primarily invests in corporate
finance and venture capital.
Further, in the recent meeting, the system committed $200m
to Levine Leitchman Capital Partners, which is focused on middle-market companies;
and $250m to Strategic Value Special Situations Fund, which focuses on special
situations and opportunistic credit or companies facing distress.